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GMCR Class Action Complaint - Nov. 2011

GMCR Class Action Complaint - Nov. 2011

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DISTRIC

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2011 NOV 29 PM~: 05
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UNITED STATES DISTRICT DISTRICT

COURT

OF VERMONT

LOUISIANA MUNICIPAL POLICE EMPLOYEES' RETIREMENT SYSTEM on behalf of itself and all others similarly situated, Plaintiff,
v,

CLASS ACTION COMPLAINT

GREEN MOUNTAIN COFFEE ROASTERS, INC., ROBERT P. STILLER, LAWRENCE J. BLANFORD, FRANCES G. RATHKE, BARBARA D. CARLINI, WILLIAM D. DAVIS, JULES A. DEL VECCHIO, MICHAEL J. MARDY, HINDA MILLER, DAVID E. MORAN, MERRILL LYNCH, PIERCE, FENNER & SMITH INC., SUNTRUST ROBINSON HUMPHREY, INC., WILLIAM BLAIR & COMPANY, L.L.C., CANACCORD GENUITY INC., JANNEY MONTGOMERY SCOTT LLC, PIPER JAFFRA Y & CO., RBC CAPITAL MARKETS, LLC, WELLS FARGO SECURITIES, LLC, RABO SECURITIES USA, INC., AND SANTANDER INVESTMENT SECURITIES INC. Defendants.

TABLE OF CONTENTS

I. II. III.

SUMMARY OF THE ACTION JURISDICTION AND VENUE PARTIES A. B. C. Plaintiff Exchange Act Defendants Securities Act Defendants ,

1 5 6 6 6 8 11 11 12 13

IV.

FACTUAL ALLEGATIONS AND DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS A. B. C. D. E. F. G. H. I. The Rise Of GMCR And The K-Cup Coffee Maker GMCR's "At-Home" Distribution Channel.. Pre-Class Period Financial Restatements And The Purported Exoneration Of GMCR' S Relationship With Mblock .,

GMCR Announces First-Quarter 2011 Results And Issues 2011 Guidance ........ 14 GMCR Announces Better-Than-Expected Second-Quarter 2011 Results GMCR'S May 2011 Secondary Stock Offering GMCR Announces Better-Than-Expected Third-Quarter 2011 Results GMCR'S Correspondence With The Sec About Mblock The Truth About Defendants' Scheme Begins To Emerge 16 20 22 24 27 31 32 35 36 37

V. VI. VII. VIII. IX.

ADDITIONAL EVIDENCE OF SCIENTER - EXCHANGE ACT CLAIMS LOSS CAUSATION - EXCHANGE ACT CLAIMS APPLICABILITY OF FRAUD ON THE MARKET PRESUMPTION THE INAPPLICABILITY OF THE STATUTORY SAFE HARBOR AND BESPEAKS CAUTION DOCTRINE CLASS ACTION ALLEGATIONS

X.

CLAIMS FOR RELIEF UNDER THE SECURITIES ACT COUNT I , " "

39 39

For Violations Of § 11 Of The Securities Act (Against The Securities Act Defendants) COUNT 11 _ _

_.39 41 41 42 42 43 _ 43

For Violations Of § 12(a)(2) Of The Securities Act (Against Defendants GMCR, Stiller, Blanford, Davis, Moran, And The Underwriter Defendants) COUNT 111 For Violations Of § 15 Of The Securities Act (Against The Officer Defendants And Director Defendants) XI. CLAIMS FOR RELIEF UNDER THE EXCHANGE ACT COUNT IV

Violations of Section 1O(b) of the Exchange Act and Rule lOb-5 (Against The Exchange Act Defendants) COUNT V _ -

43 45

Violations of Section 20(a) of the Exchange Act (Against The Officer Defendants) , PRAYER FOR RELIEF - Applicable To All Claims JURY TRIAL DEMAND - Applicable To All Claims

45 47 48

11

Plaintiff Louisiana Municipal Police Employees' "Plaintiff'), by its undersigned

Retirement System ("LAMPERS"

or

counsel, brings this action on behalf of itself and all other

similarly situated persons or entities (the "Class"), other than Defendants and their affiliates (as described herein), who purchased or otherwise acquired common stock issued by Green

Mountain Coffee Roasters, Inc. ("GMCR" or the "Company"), from February 2, 2011 through November 9, 2011, inclusive (the "Class Period"), for violations of the federal securities laws. Plaintiff seeks to recover damages caused to the Class by Defendants' violations of Sections

10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 11, 12 and 15 of the Securities Act of 1933 ("Securities Act"). The allegations in this Complaint are

based on Plaintiff s personal knowledge as to itself and on information and belief (including the investigation of counsel and a review of publicly available information) as to all other matters.

I.

SUMMARY OF THE ACTION
1. GMCR is a Vermont-based leader in the specialty coffee and coffee maker

businesses.

The Company has achieved significant growth in recent years, driven by sales from

its popular Keurig single-cup brewing system, which uses "K-Cup" portion packs to brew single servings of coffee and other beverages. Alone, these two line items-i.e., K-Cups and the brewers into which they are inserted-accounted for approximately 86% and 84% of GMCR's GMCR rolls out its lucrative Kdistribution channel.

consolidated net sales in fiscal 2010 and 2011, respectively: Cup and Keurig brewing products primarily

through its "At-Home"

GMCR's At-Home distribution channel relies almost exclusively on a single order fulfillment entity, M.Block & Sons ("MBlock"). The Company's relationship with MBlock is therefore

critical to its success, with MBlock processing the majority of U.S. sales orders for GMCR's

I

GMCR operates on a 52-week fiscal year that ends on the last Saturday in September.

single-cup business, which accounted for more than 95% of the Company's revenues in fiscal 2010 and 2011. 2. Three months prior to the start of the Class Period, on September 28, 2010,

GMCR disclosed that it was the subject of an inquiry being conducted by the United States Securities and Exchange Commission (the "SEC") concerning revenue recognition practices and the Company's relationship with a key fulfillment vendor-MBlock. Within two months of

disclosing the SEC's inquiry, GMCR announced a sweeping restatement of previously issued financial statements for fiscal 2006-2009 and the first three quarters of 2010. Significantly, in issuing those restatements prior to the Class Period, GMCR vehemently denied MBlock's connection to any of the identified accounting errors. GMCR repeatedly emphasized that "none of the financial statement errors are related to the Company's relationship with M.Block & Sons." The Company's 2006-2009 restatements and repeated representations that none of those financial accounting errors related to MBlock signaled to investors that the brunt of the SEC's inquiry was over (although it technically remained ongoing). GMCR once again assured

investors that the Company's financial statements were being presented in conformance with Generally Accepted Accounting Principles ("GAAP"), and that business was booming. 3. Throughout the Class Period, the Company was portrayed to the investing public

as a healthy and growing business, with rapidly increasing revenues and K-Cup sales. GMCR was frequently described as one of the hottest stories on the NASDAQ Global Market ("NASDAQ") during the Class Period, with shares nearly quadrupling in price from January 2011 to September 2011. 4. This portrayal of the Company was false. Defendants named herein orchestrated

an elaborate scheme to materially overstate the Company's apparent success, complete with

2

falsified financial statements.

Revelations concerning the Company's

true state of affairsbillions of

punctuated by a shocking earnings miss for the first time in eight quarters--destroyed

dollars in market capitalization, and directly and proximately caused significant damage to the Company's investors. 5. As detailed below, during the Class Period, revenues. Defendants systematically

manipulated and strategically managed the Company's

To do so, Defendants used

MBlock as a captive warehouse to park excessively manufactured, expired, or otherwise unsold product. The fraudulent scheme at GMCR involved materially overstating the Company's through sham inventory shipments-for GMCR booked

revenues based on falsified sales orders-including hundreds

of millions of dollars in K-Cup and Keurig brewer products.

"revenues" associated with these false sales orders and shipments as though they were real. These acts caused a ripple effect throughout the Company's financial statements, resulting in the material overstatement of multiple metrics on which investors and analysts relied, including the Company's profits, and inventory and product demand levels. Defendants also fraudulently overstated GMCR's Throughout the Class Period, to the Company's

assets in proportion

fictitious revenues by carrying the proceeds of dummy sales as assets on the Company's balance sheet. In short, GMCR essentially ran a shell game through MBlock, which it secretly

controlled, to manufacture earnings during the Class Period. 6. Defendants' scheme was revealed in a series of partial disclosures. On October

17, 2011, at the seventh annual Value Investing Conference, the truth about the misconduct at GMCR began to emerge. David Einhorn, an investor in GMCR who became well-known for

helping to bring the financial fraud at Lehman Brothers to light, undertook a lengthy and indepth analysis of GMCR's financial reporting and relationship with MBlock (the "Einhorn

3

Presentation"). The Einhorn Presentation cited expert analysis of detailed information gleaned from numerous sources, not all of which were readily available to the public. The Einhorn Presentation revealed that, during the Class Period, GMCR and MBlock engaged in what one analyst later called a "variety of shenanigans that appear designed to mislead auditors and to inflate financial results. " 7. First, the Einhorn Presentation described a fraudulent scheme centered on the

"unusual" and "peculiar" relationship between GMCR and MBlock. Unbeknownst to investors, GMCR effectively controlled MBlock and exploited the relationship to conduct regular "crossshipping," whereby product was transferred from one facility to another (often multiple times) for no apparent reason. Second, the Einhorn Presentation detailed "odd material movements" between GMCR and MBlock, such that MBlock employees were directed to inventory and process orders that were never shipped. Third, the Einhorn Presentation disclosed systemic excess production practices at GMCR that the Company used to generate fake demand for its products, leading to a "significant problem with expired coffee" housed at MBlock. In short, as one analyst reported, the Einhorn Presentation revealed that GMCR's growth was built on a "house of cards." 8. The revelation of GMCR's scheme as detailed in the Einhorn Presentation and

subsequent analyst and media reports wiped out billions of dollars of shareholder value as the price of the Company's common stock collapsed. Specifically, the price of GMCR's common stock dropped 33% in response to the stunning news in the Einhorn Presentation and resulting media reports. 9. Then, while market concern over the Einhorn Presentation continued to swell, the

Company made its own disclosure, surprising analysts by announcing highly disappointing

4

earnings on November 9, 2011. The Company missed sales estimates for the first time in more than eight quarters, and fell approximately estimates. $50 million short of analysts' consensus revenue

The Company also announced skyrocketing inventory (up 156% year-over-year) in Analysts expressed

sharp contrast to prior statements about inventory being in "good shape." astonishment at the Company's about-face.

GMCR's shares plummeted 40%, from a close of

$67.02 on November 8 to $40.89 on November 9, on extremely heavy trading volume. All told, these corrective disclosures wiped out approximately $6.5 billion in market capitalization. 10. This action seeks to recover the damages caused by Defendants' misconduct.

II.

JURISDICTION AND VENUE
11. This Complaint asserts claims ansing under Sections 10(b) and 20(a) of the

Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations promulgated thereunder, including SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 ("Rule 10b-5"). This Complaint also asserts claims arising under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77k, 771(a)(2), and 770. 12. This Court has jurisdiction over the subject matter of this action pursuant to

Section 27 of the Exchange Act, 15 U.S.C. § 78aa, Section 22 of the Securities Act, 15 U.S.C. § 77v, and 28 U.S.C. § 1331, because this is a civil action arising under the laws of the United States. 13. Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15

U.S.C. § 78aa, Section 22(a) of the Securities Act, 15 U.S.C. § 77v, and 28 U.S.C. § 1391(b), (c) and (d). GMCR maintains its principle corporate offices in this District and many of the acts

charged herein, including the preparation and dissemination of materially false and misleading information, occurred in substantial part in this District. 14. In connection with the acts alleged in this Complaint, Defendants, directly or 5

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the United States mails, interstate telephone communications, and the facilities of national securities exchanges. III. PARTIES A. 15. PLAINTIFF Plaintiff Louisiana Municipal Police Employees' Retirement System

("LAMPERS" or "Plaintiff') is a public pension system established and maintained by the government of the State of Louisiana for the benefit of municipal police employees in Louisiana. During the Class Period, LAMPERS purchased GMCR common stock as set forth in the attached certification and was injured thereby. B. 16. EXCHANGE ACT DEFENDANTS Defendant GMCR, formed in 1993 in the State of Delaware, maintains corporate

headquarters at 33 Coffee Lane, Waterbury, Vermont 05676. The Company and its subsidiaries operate in the specialty coffee and coffee maker businesses. As of September 24, 2011, the Company had approximately 5,600 full-time employees. 17. Defendant Robert P. Stiller ("Stiller") is, and was at all relevant times during the

Class Period, the Founder ofGMCR and the Chairman of the Company's Board of Directors. 18. Defendant Lawrence J. Blanford ("Blanford") is, and was at all relevant times

during the Class Period, the President, Chief Executive Officer and a Director of GMCR. 19. Defendant Frances G. Rathke ("Rathke") is, and was at all relevant times during

the Class Period, the Chief Financial Officer, Treasurer, Secretary, and Principal Financial and Accounting Officer of GMCR. 20. Defendants Stiller, Blanford and Rathke are referred to collectively herein as the

"Officer Defendants."
6

21.

Defendants GMCR, Stiller, Blanford, and Rathke are referred to collectively

herein as the "Exchange Act Defendants." 22. During the Class Period, the Officer Defendants, as senior executive officers

and/or directors of GMCR, had access to material adverse non-public information concerning GMCR, its operations, finances, financial condition, and present and future business prospects. Because of their positions with GMCR, the Officer Defendants were privy to confidential and proprietary information, and information about GMCR's business, finances, products, markets, and present and future business prospects via internal corporate documents, conversations and connections with other corporate officers and employees, attendance at management and/or board of directors meetings and committees thereof and via reports and other information provided to them in connection therewith. Because of their possession of such information, the Officer Defendants knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to, and were being concealed from, the investing public. 23. The Officer Defendants are liable as direct participants in the wrongs complained

of herein. In addition, the Officer Defendants, by reason of their status as senior executive officers and/or directors, were "controlling persons" within the meaning of Section 20(a) of the Exchange Act, and had the power and influence to cause the Company to engage in the unlawful conduct complained of herein. Because of their positions of control, the Officer Defendants were able to and did, directly or indirectly, control the conduct of GMCR's business. 24. The Officer Defendants, because of their positions with the Company, controlled

and/or possessed the authority to control the contents of its reports, press releases and presentations to securities analysts and, through them, to the investing public. The Officer Defendants were provided with copies of the Company's reports and press releases alleged

7

herein to be misleading, pnor to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Defendants had the opportunity to commit the fraudulent acts alleged herein. 25. As senior executive officers and/or directors and as controlling persons of a Thus, the Officer

publicly traded company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was, and is, traded on the NASDAQ and governed by the federal securities laws, the Officer Defendants had a duty to promptly disseminate accurate and truthful information with respect to GMCR's financial condition and performance, growth, operations, financial statements, business, products, markets, management, earnings, and present and future business prospects, and to correct any previously issued statements that had become materially misleading or untrue, so that the market price of GMCR common stock would be based upon truthful and accurate information. The Officer Defendants' misrepresentations and omissions during the Class Period violated these specific requirements and obligations. 26. The Officer Defendants are liable as participants in a fraudulent scheme and

course of conduct that operated as a fraud or deceit on purchasers of GMCR common stock by disseminating materially false and misleading statements and/or concealing material adverse facts, which caused Plaintiff and members of the Class to purchase GMCR common stock at artificially inflated prices. C. 27. SECURITIES ACT DEFENDANTS Defendant Barbara D. Carlini ("Carlini") joined the GMCR Board of Directors in

2002, and served as a member of the GMCR Board of Directors at all relevant times herein. As adirector ofGMCR, Carlini signed the 2011 Offering Materials (defined infra). 28. Defendant William D. Davis ("Davis") joined the GMCR Board of Directors in

1993, and served as a member of the GMCR Board of Directors at all relevant times herein. As
8

a director of GMCR, Davis signed the 2011 Offering Materials. 29. Defendant Jules A. Del Vecchio ("Del Vecchio") joined the GMCR Board of

Directors in 1993, and served as a member of the GMCR Board of Directors at all relevant times herein. As a director of GMCR, Del Vecchio signed the 2011 Offering Materials. 30. Defendant Michael J. Mardy ("Mardy") joined the GMCR Board of Directors in

2007, and served as a member of the GMCR Board of Directors at all relevant times herein. As a director of GMCR, Mardy signed the 2011 Offering Materials. 31. Defendant Hinda Miller ("Miller") joined the GMCR Board of Directors in 1999, As a

and served as a member of the GMCR Board of Directors at all relevant times herein. director of GMCR, Miller signed the 2011 Offering Materials. 32.

Defendant David E. Moran ("Moran") joined the GMCR Board of Directors in

1999, and served as a member of the GMCR Board of Directors at all relevant times herein. As a director ofGMCR, Moran signed the 2011 Offering Materials. 33. Defendants Carlini, Davis, Del Vecchio, Mardy, Miller, and Moran are referred to

collectively herein as the "Director Defendants." 34. Defendant Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill") was an

underwriter of the 2011 Offering as specified herein. As an underwriter of the 2011 Offering, Merrill was responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 35. Defendant SunTrust Robinson Humphrey, Inc. ("SunTrust") was an underwriter

of the 2011 Offering as specified herein. As an underwriter of the 2011 Offering, SunTrust was responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials.

9

36.

Defendant William Blair & Company, L.L.C. ("William Blair") was an

underwriter of the 2011 Offering as specified herein. As an underwriter of the 2011 Offering, William Blair was responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 37. Defendant Canaccord Genuity Inc. ("Canaccord") was an underwriter of the 2011

Offering as specified herein. As an underwriter of the 2011 Offering, Canaccord was responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 38. Defendant Janney Montgomery Scott LLC ("Janney") was an underwriter of the As an underwriter of the 2011 Offering, Janney was

2011 Offering as specified herein.

responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 39. Defendant Piper Jaffray & Co. ("Piper Jaffray") was an underwriter of the 2011 As an underwriter of the 2011 Offering, Piper Jaffray was

Offering as specified herein.

responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 40. Defendant RBC Capital Markets, LLC ("RBC") was an underwriter of the 2011

Offering as specified herein. As an underwriter of the 2011 Offering, RBC was responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 41. Defendant Wells Fargo Securities, LLC ("Wells Fargo") was an underwriter of

the 2011 Offering as specified herein. As an underwriter of the 2011 Offering, Wells Fargo was responsible for ensuring the truthfulness and accuracy of the various statements contained in or

10

incorporated by reference into the 2011 Offering Materials. 42. Defendant Rabo Securities USA, Inc. ("Rabo") was an underwriter of the 2011

Offering as specified herein. As an underwriter of the 2011 Offering, Rabo was responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 43. Defendant Santander Investment Securities Inc. ("Santander") was an underwriter

of the 2011 Offering as specified herein. As an underwriter of the 2011 Offering, Santander was responsible for ensuring ~hetruthfulness and accuracy of the various statements contained in or incorporated by reference into the 2011 Offering Materials. 44. Defendants Merrill, SunTrust, William Blair, Canaccord, Janney, Piper Jaffray,

RBC, Wells Fargo, Rabo, and Santander are referred to collectively herein as the "Underwriter Defendants." 45. GMCR, Officer Defendants, Underwriter Defendants, and Director Defendants

are referred to collectively herein as the "Securities Act Defendants." IV. FACTUAL ALLEGATIONS AND DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS A. 46. THE RISE OF GMCR AND THE K-CUP COFFEE MAKER GMCR began as a small coffee shop and cafe in rural Vermont in 1981. The

Company, which went public in 1993, today employs over 5,600 full-time workers, boasts market capitalization of more than $10 billion, and is an established leader in the specialty coffee industry selling "high-quality coffee and innovative coffee brewing." 47. Keurig-a Critical to GMCR's growth and success was the Company's 2006 acquisition of pioneer and leading manufacturer of a patented single-cup brewing system and the

accompanying single-brewer K-Cup portion packs. An article entitled "The Growing Popularity

11

of the K-Cup Coffee Makers," published on May 6, 2010, described the Keurig and K-Cup phenomenon: For those of you who have been blissfully brewing your coffee 8 cups at a time, it might corne as a surprise that there is a technology out there used by thousands of consumers to brew coffee one cup at a time. Not so long ago, a group of folks had the idea to make it simple to brew a single cup of coffee without the hassle of grinding beans or keeping coffee grounds fresh in a large container. In 2004, consumers were introduced to the Keurig brand of single cup coffee makers, and the K-Cup was born.... 48. Since the birth of the K-Cup and GMCR's acquisition of Keurig in 2006, the

Company has billed itself as "sitting on top of magnificent technology" with "a host of patents." GMCR management has even touted, "We are the iPod of coffee." Specifically, the Company now sells dedicated coffee machines that exclusively use K-Cup coffee packs, and manufactures and sells K-Cup coffee packs to users ofthose machines. 49. Indeed, sales of K-Cups and Keurig brewing systems have been the predominant GMCR's revenues growing at a

drivers of the Company's growth over the last five years-with

57% compound annual growth rate between 2006 and 2010. The Company's rapid revenue growth put GMCR on the map as a high-growth company and sparked the investing community's interest.
B.

GMCR'S "AT -HOME" DISTRIBUTION CHANNEL To foster the robust revenue growth of the Company's K-Cup and Keurig brewing

50.

systems, GMCR manages its u.S. operations through two business segments, the Specialty Coffee Business Unit ("SCBU") and Keurig, Inc. ("Keurig"). SCBU markets and sells K-Cup portion packs for use in the Keurig system. SCBU sells some products directly to Keurig for resale to retailers (e.g., supermarkets and grocery stores), and sells other products directly to retailers. The Keurig unit sells single-cup brewers, coffee, tea, and hot cocoa in K-Cups

produced by a variety of roasters, including SCBU, and related accessories mainly in domestic 12

wholesale and retail markets and also directly to consumers.

Keurig earns royalty income from

the sale ofK-Cups from all coffee roasters licensed to sell K-Cups. 51. Although GMCR sells its Keurig systems and K-Cups through both an "Atchannel, more than 95% of Keurig brewers shipped Significantly, the

Home" channel and an "Away-From-Home"

by GMCR in fiscal 2010 and 2011 were sold through the At-Home channel.

majority of U.S. sales orders for GMCR's single-cup business, which accounted for 97% of the fiscal 2010 revenues, are processed through MBlock. Receivables from MBlock comprised approximately 51% and 43% of GMCTR's consolidated accounts receivable balance in fiscal

2010 and 2011, respectively. 52. According to GMCR's fiscal 2010 Annual Report, which was filed before the

Class Period on December 9, 2010, the Company purports to "recognize] ] revenue when the fulfillment entities [such as Mlslock] ship the product based on the contractual shipping terms, which generally are upon product shipment, and when all other revenue recognition criteria are met."

C.

PRE-CLASS PERIOD FINANCIAL RESTATEMENTS ANDTHE PURPORTED EXONERATION OF GMCR'S RELATIONSHIP WITHMBLOCK
On September 28, 2010, approximately three months before the start of the Class

53.

Period, GMCR disclosed that it was the subject of an SEC inquiry with which the Company was "cooperating fully." GMCR explained that the SEC's inquiry concerned revenue recognition

practices as well as the Company's relationship with its key fulfillment vendor-MBlock. 54. On November 19, 2010, less than two months after disclosing the SEC inquiry

(and approximately

two months prior to the start of the Class Period), GMCR issued a press

release announcing that investors "should no longer rely upon" the Company's previously issued financial statements for fiscal 2007-2009 and the first three quarters of 2010, because they were 13

materially misstated and included errors. 55. In announcing this multi-year restatement, GMCR emphasized that "none of the

financial statement errors are related to the Company's relationship with M.Block & Sons, the fulfillment vendor through which the Company makes a majority of the at-home orders for the Keurig business unit's single-cup business sold to retailers." Shortly thereafter, on December 9, 2010, when GMCR filed its Annual Report for fiscal 2010 with the SEC, the Company reiterated its previously issued misstated financials as disclosed on November 19, but also stated that fiscal 2006 financial results should not be relied upon. Significantly, however, GMCR maintained that none of those financial misstatements were related to MBlock. Given GMCR's vigorous and repeated denials of MBlock's connection to any of its identified financial accounting errors, the preliminary findings of the SEC's inquiry appeared to exonerate the Company's relationship with MBlock. With this dark chapter ostensibly in GMCR's rear view, the Company and financial community shifted focus back to the bull market for GMCR's products. D. 56. GMCR ANNOUNCES FIRST-QUARTER 2011 RESULTS AND ISSUES 2011 GUIDANCE On February 2,2011, GMCR announced first-quarter 2011 results (the "February The February 2 Press Release provided strong results and even stronger

2 Press Release").

outlook. Total net sales were up 67%, and net sales from K-Cup portion packs totaled $332.9 million, up 89%, or $156.7 million, over the same period in 2010. In fact, GMCR represented that demand for its Keurig and K-Cup products was so strong that the Company was capacity constrained. On a conference call held to discuss the Company's first-quarter 2011 results (the "February 2 Earnings Call"), Defendant Larry Blanford, GMCR's CEO, stated: definitely being stretched .... "We are

[D]emand is definitely stretching our ability to supply. And

we've not quite caught up with that demand curve yet."

14

57.

Indeed, during the Class Period, the market was led to believe that the GMCR

growth story was still in the early innings. The February 2 Press Release reinforced this message with bullish estimates for the Company's second-quarter and full 2011 fiscal year. GMCR estimated total second-quarter consolidated net sales growth of 92-97% and non-GAAP EPS in the range of $0.38-0.42 per diluted share. The February 2 Press Release also provided guidance estimates for the full fiscal 2011 year: total consolidated net sales growth guidance of 75-80% and non-GAAP earnings per diluted share range of $1.19-1.29. 58. The next day, the Company filed its Quarterly Report with the SEC on a Form 10-

Q (the "Ql '11 10-Q"), substantially reiterating the results announced in the February 2 Press Release. 59. In response to positive statements made in the Company's February 2 Press

Release, the Ql' 11 lO-Q, and on the February 2 Earnings Call, GMCR's stock price increased from a closing price of$32.96 on February 2 to a closing price of$37.78 on February 3. 60. The February 2-3 statements enumerated in ~~ 56-58 were materially false and Defendants fraudulently overstated GMCR's revenues based on

misleading when made.

falsified sales orders and ghost shipments to nowhere. These inflated revenues caused a ripple effect throughout GMCR's financial statements, distorting numerous operating statistics reported to the investing public and the Class. As a function of the overstatement of revenues, the Company's gross profits were also materially overstated. Defendants' misconduct also caused the EPS disclosed to be materially overstated. In addition, Defendants also fraudulently

overstated GMCR's assets in proportion to the Company's fictitious revenues. As the Company consistently recognized fraudulent revenues and profits, the false proceeds from this non-existent business were carried as assets on the Company's balance sheet. In addition, the Company's

15

claims of increasing Keurig and K-Cup demand leading to capacity constraint were false and misleading when made, because they failed to disclose that demand for GMCR's products was being propped up by excessive production schedules and fictitious inventory transfers between GMCR and MBlock.
E.

GMCR ANNOUNCES BETTER-THAN-EXPECTED SECOND-QUARTER 2011 RESULTS On May 3, 2011, GMCR announced better-than-expected second-quarter 2011

61.

results (the "May 3 Press Release"). The May 3 Press Release, entitled "Green Mountain Coffee Roasters, Inc. Reports Second Quarter Fiscal 2011 Results-Strong Consumer Adoption

Powering Keurig Single-Cup Brewing System Sales," was filed with the SEC on a Form 8-K. In it, GMCR published an Unaudited Consolidated Statement of Operations and stated in part: Net sales for the second quarter of fiscal 2011 increased 101% to $647.7 million as compared to $322.0 million for the second quarter of fiscal 2010. Under Generally Accepted Accounting Principles (GAAP), net income for the second quarter of fiscal 2011 totaled $65.4 million, or $0.44 per diluted share, representing an increase of 172% as compared to GAAP net income of $24.1 million, or $0.17 per diluted share, for the second quarter of fiscal 2010.... Net sales from Keurig brewers and accessories totaled $116.2 million in the quarter, up 86%, or $53.8 million, from the prior year period. Supporting continued growth in K-Cup® demand, GMCR sold 1.2 million Keurig brewers during the second quarter of fiscal 2011. This brewer shipment number does not account for consumer returns to retailers. We estimate that GMCR brewer shipments represented approximately 91% of total brewers shipped with Keurig technology in the period. Second quarter fiscal 2011 gross margin was 37.5% of total net sales compared to 33.5% for the corresponding quarter in fiscal 2010. The Company increased its GAAP operating income by 198%, to $119.6 million, in the second quarter of fiscal 2011 as compared to $40.1 million in the year ago quarter. . .. Accounts receivable increased 77% year-over-year to $226.8 million at March 26, 2011, from $128.2 million at March 27,2010, reflecting continuing sales growth. Inventories were $300.8 million at March 26, 2011 including $29.5 million of Van Houtte-related inventories. This compares to $262.5 million at September

16

25,2010 .... The acquisition of Van Houtte completed on December 17,2010 contributed $100.5 million to consolidated net sales .... 62. The May 3 Press Release also provided the Company's first estimates for the third GMCR estimated total consolidated net sales growth of 90-95%, revenue

quarter of 2011.

guidance of $602-617 million, and non-GAAP EPS in the range of $0.34-0.38 per diluted share, excluding certain costs and expenses. 63. The May 3 Press Release also provided increased guidance estimates for the full

fiscal 2011 year. The Company raised total consolidated net sales growth guidance of 82-87%, up from previous net sales growth guidance of 75-80%. The Company also increased its 2011

non-GAAP earnings per diluted share range to $1.43-1.50 from $1.19-1.29, excluding certain costs and expenses. 64. Later that day, the Company filed a Quarterly Report with the SEC on a Form 10-

Q (the "Q2' 11 10-Q"), substantially reiterating the results announced in the May 3 Press Release. The Company also held a conference call with investors and analysts to discuss its secondquarter 2011 results (the "May 3 Earnings Call"). On the May 3 Earnings Call, analysts were

pleasantly surprised by the Company's results, and GMCR's executives were questioned about the driving factors of the better-than-expected growth. In response, GMCR's senior executives

clearly stated that the Company did not pull forward or otherwise strategically manage any sales, and that inventory was not building, 65. Specifically, during the May 3 Earnings Call, Bryan Spillane, an analyst from

Bank of America Merrill Lynch, asked how much, if any, in sales "actually might have been pulled forward." In response, Michelle Stacy, President of GMCR's Keurig division, explained:

"We did not pull forward any sales at all. The general demand is what we see. Wefill our customers' orders as they come in, and they were not building any excessive inventories at all

17

at retail."

66.

GMCR's John Whoriskey, General Manager of the Company's Keurig At-Home Whoriskey added, "there is no pulling

division, further responded to Spillane's question.

forward of shipments to do anything, other than react to the demand and make sure we have adequate inventories in place to meet the demand for the period." When Mr. Spillane (the

analyst from Bank of America Merrill Lynch) pressed on about potentially mounting inventory levels given the significant increases in brewer shipments in the second quarter, Whoriskey stated, "I would say that I think the inventory certainly we are building a little bit more inventory to meet the demand, but it is not any substantial number that is affecting what we did in the quarter if that is the question." 67. In response to the positive statements made in the Company's May 3 Press 10-Q, and on the May 3 Earnings Call, GMCR's stock price increased

Release, Q2'1l

approximately 19.4%, from a closing price of $64.07 on May 2 to a closing price of $75.98 on May 3. 68. The May 3 statements enumerated
III ~~

61-66 were materially false and

misleading when made.

Defendants fraudulently overstated GMCR's revenues based on

falsified sales orders and ghost shipments to nowhere. These inflated revenues caused a ripple effect throughout GMCR's financial statements, distorting numerous operating statistics reported to the investing public and the Class. As a function of the overstatement of revenues, the Company's gross profits were also materially overstated. Defendants' misconduct also caused the EPS disclosed to be materially overstated. In addition, Defendants also fraudulently

overstated GMCR's assets in proportion to the Company's fictitious revenues. As the Company consistently recognized fraudulent revenues and profits, the false proceeds from this non-existent

18

business were carried as assets on the Company's balance sheet. 69. Further, as summarized in a May 9,2011 Janney Capital Markets research report,

the Company's unexpected upside in the second quarter was due to the fact that GMCR sold 1.3 million brewers, which exceeded market expectations by approximately 300,000 brewers. In

reality, however, this was not so. The upside was fabricated. Tellingly, according to the Einhorn Presentation (discussed in detail infra), this is the same quarter in which a former MBlock worker described 500,000 brewers that were fraudulently booked as sold to QVC but never shipped. See ~ 98. 70. Additionally, in response to questions about the driving factors of the better-thansenior executives stated that the See ~~ 64-66. These

expected growth on the May 3 Earnings Call, GMCR's

Company did not pull forward or otherwise strategically manage sales.

statements on the May 3 Earnings Call were false and misleading when made because they failed to disclose that the Company's purportedly strong results were achieved only as a result of the fact that Defendants were pulling sales in from nowhere (and shipping them to the same place) vis-a-vis its MBlock shell game. 71. Similarly, on the May 3 Earnings Call, GMCR's senior executives stated that See ~~ 64-65. These statements were also false and

inventory levels were not building, misleading when made.

GMCR's reported 156% year-over-year spike in inventory is telling.

The falsity of these statements is further demonstrated by the fact that this is the same quarter in which, as the Einhorn Presentation noted, people "visited MBlock and saw its warehouses filled to the rafters with K-cups." transfers statements. between MBlock Accounts of "cross shipping" and sham and circular inventory warehouses and GMCR further evidence the falsity of these manipulated and

In sum, Defendants

failed to disclose that they systematically

19

managed the Company's revenues by usmg MBlock to harbor excessively manufactured, expired, or otherwise unsold product. F. 72. GMCR'S MAY 2011 SECONDARY STOCK OFFERING On May 3, 2011, concurrent with the release of GMCR's surprisingly strong

second-quarter results, the Company announced that it would sell 7.1 million shares in a secondary common stock offering (the "May 2011 Offering"). The May 2011 Offering was eventually priced at $71.00 per share. 73. In addition to the 7.1 million shares being issued by GMCR, certain inside

stockholders also seized the opportunity to sell off 410,456 common stock shares in the May 2011 Offering. GMCR did not receive proceeds from the sale of the selling stockholders' common stock. 74. The selling stockholders included Defendants Stiller, Blanford, Davis, and Moran,

each of whom reaped the proceeds detailed below: Selling Stockholder Defendant Robert Stiller Lawrence Blanford William D. Davis David E. Moran 75. Shares Sold 310,000 51,573 40,000 8,883 Gross Proceeds $22,010,000 $3,661,683 $2,840,000 $630,693

In connection with the May 2011 Offering, GMCR filed a May 3 Preliminary

Prospectus Supplement and May 5 Prospectus Supplement (both Forms 424B7), which supplemented an August 3,2009 Automatic Shelf Registration Statement (Form S-3ASR) and its accompanying Prospectus (Form 424B5) (collectively, the "2011 Offering Materials"). 76. The May 2011 Offering Materials expressly incorporated by reference the Q2' 11

20

10-Q and were signed by the Officer Defendants and the Director Defendants. 77. The May 2011 Offering was underwritten by the Underwriter Defendants, defined Merrill served as Sole Book Runner and SunTrust served as Co-Lead

supra at ~~ 34-43. Manager.

Pursuant to an underwriting agreement, each of the underwriters agreed severally to

purchase from GMCR and the selling stockholders the amount of GMCR common stock set forth below: Underwriter Merrill SunTrust William Blair Canaccord Janney Montgomery Piper Jaffray RBC Wells Fargo Rabo Santander 78. # of Shares 4,730,000 860,000 430,000 430,000 430,000 430,000 430,000 430,000 215,000 215,000

The May 2011 Offering closed on May 11. Ultimately, GMCR offered 9,479,544 1,290,000 shares purchased by the Underwriter

shares of common stock (which included Defendants pursuant to an overallotment shares. million. 79.

option), and the selling stockholders sold 410,456

GMCR and the selling shareholder Defendants raised net proceeds of more than $680

The May 2011 Offering Materials, which incorporated by reference the Q2' 11 10-

Q, were materially false and misleading when made for the reasons enumerated supra.

21

G. 80.

GMCR ANNOUNCES BETTER-THAN-EXPECTED THIRD-QUARTER 2011 RESULTS On July 27, 2011, GMCR issued a press release announcing better-than-expected

third-quarter 2011 results (the "July 27 Press Release"). The July 27 Press Release, entitled "Green Mountain Coffee Roasters, Inc. Reports Third Quarter Fiscal 2011 Results-Spring Advertising and Brand Promotion Raise Awareness of the Keurig Single-Cup Brewing System and Brew Over Ice Beverages," was filed with the SEC on a Form 8-K. In it, GMCR announced that net sales revenues came in at $717 million, which included $485 million of K-cup sales. This $717 million was $108 million higher than analysts' consensus estimates, and even $100 million more than GMCR's own May 3 revenue guidance of$602-617 million. 81. Later that day, GMCR held a conference call with investors and analysts to

discuss the Company's third-quarter 2011 results (the "July 27 Earnings Call"). On the July 27 Earnings Call, Defendant Blanford stated: I am thrilled to report we delivered net sales of $717.2 million, a growth rate of 127% over the same period in fiscal 2010. Our non-GAAP earnings per diluted share increased 140% to $0.49 in the third quarter of fiscal 2011, up from $0.21 in the third quarter of fiscal 2010, and exceeded our guidance range largely as a result of stronger than anticipated portion pack driven revenue growth in the quarter. 82. Defendant Rathke, GMCR's CFO, similarly claimed on the July 27 Earnings Call

that GMCR management was "surprised [by] the upside on the strength of the portion pack (Kcup) sales." Rathke further ascribed the $100 million revenue outperformance to a combination of the following factors: (1) continued strong consumer adoption of Keurig single-cup brewing systems coming off a holiday season; (2) higher advertising and retail merchandising; (3) catchup from prior periods (i.e., more K-cups sold in the June quarter as a result of adding additional capacity and filling pent-up customer demand from December and March quarters); (4) customer pull-forward from future periods (i.e., more K-cups sold in the June quarter as a result of retailers 22

purchasing K-cups in advance of a K-cup price increase that took effect at the end of the June quarter). 83. Notably, in response to a question about "channel fill" and inventory builds from

a Longbow research analyst, Defendant Rathke also stated on the July 27 Earnings Call: .... I think coming off of Q2 we definitely had shortages or outages of certain products. So I do know we had a backlog that we fulfilled in Q3 on-so that was a piece of it. So I feel what we've been seeing and hearing from all of our accounts is that during Q3 we got back into a place where we knew we had appropriate inventory levels, and they felt comfortable they were getting appropriate inventory levelsfor the products. So I think we're in good shape." 84. In response to the positive statements made in the Company's July 27 Press

Release and on the July 27 Earnings Call, GMCR's stock price increased from a closing price of $88.11 on July 27 to a closing price of $102.57 on July 28. 85. On August 3, 2011, the Company filed a Quarterly Report with the SEC on a

Form 10-Q (the "Q311 1O-Q"), substantially reiterating the results announced in the July 27 Press Release. 86. The July 27 and August 3 statements were materially false and misleading when

made. Defendants fraudulently overstated GMCR's revenues based on falsified sales orders and ghost shipments to nowhere. These inflated revenues caused a ripple effect throughout GMCR's financial statements, distorting numerous operating statistics reported to the investing public and the Class. As a function of the overstatement of revenues, the Company's gross profits were also materially overstated. Defendants' misconduct also caused the ·EPS disclosed to be materially overstated. In addition, Defendants also fraudulently overstated GMCR's assets in proportion to the Company's fictitious revenues. As the Company consistently recognized fraudulent revenues and profits, the false proceeds from this non-existent business were carried as assets on the Company's balance sheet.

23

87.

Further, Defendant Blanford again attributed outperformance to "stronger than

anticipated portion pack" demand in the quarter. So too did Defendant Rathke. See ~~ 81-83 .. However, as was the case with the Company's first-quarter and second-quarter results, this was not so. The upside was still fabricated. The Company's revenues were still based on falsified

sales orders and sham shipments to nowhere. 88. Additionally, Defendant Rathke's statements that there was still strong demand

for GMCR products leading to product shortages and that GMCR had "appropriate inventory levels for the products" such that the Company was "in good shape," see ~ 83, were also false and misleading when made for the same reasons enumerated supra.

H.
89.

GMCR'S CORRESPONDENCE WITH THE SEC ABOUT MBLOCK
On March 29,2011, on behalf of GMCR, Defendant Rathke sent a letter, which

was publicly filed (the "March 29 Response Letter"), responding to a comment letter that the SEC had sent to GMCR on March 2, 2011, inquiring into the sufficiency of the Company's MBlock-related disclosures (the "March 2 Comment Letter"). The March 2 Comment Letter

was sent by SEC Assistant Director H. Roger Schwall to Defendant Rathke, and stated in relevant part: [COMMENT 4]

We note that you rely on a single orderfulfillment entity, M.Block & Sons, Inc. ("MBLock'? in the U.S. to process the majority of the sales ordersfor your AH single-cup business. You also indicate that MBLock "generally" accepts all
credit risk on sales to these retailers. Tell us the circumstances under which MBlock would not assume the credit risk, quantify the amount of sales channeled through MBlock where you retained the risk of collection for each of the years presented, and describe your revenue recognition policy for these sales

transactions.
Tell us your sales return policy for all types of transactions reflected in your financial statements and explain why this policy is not apparent in your

24

disclosure. Please also quantify the amount of sales returns that occurred in each period.

[COMMENT 9]

*

*

*

We note your disclosure regarding the importance of your relationship with M.Block & Sons, Inc., the order fulfillment entity through which the company makes a majority of the at-home orders for the Keurig business unit's single-cup business sold to retailers. Please tell us how you concluded that filing your

contract documentation would not be required to comply with Item 601(b)(10) of Regulation S-K. ...
90. relevant part: Historically, MBlock accepted all credit risk on sales to retailers through MBlock, with the exception of one retailer, QVC. QVC sales processed through MBlock accounted for approximately $16.1 million in, or approximately 1.2% of, sales for fiscal 2010 .... With respect to non- TSV event sales to QVC, the Company has historically recognized revenue upon shipment, although there may be a right of return. The Company recognized revenue upon shipment because the amount of these sales is smaller than for the TSV events and, based on historical rates or return being very low, the risk for return is minimal. As disclosed in Note 2, Restatement of Previously Issued Financial Statements, of the Notes to Consolidated Financial Statements under the heading Other Adjustments, the Company recently determined, based upon review of its contract with QVC that the risk of loss does not transfer under the contract until the product is sold through to the end customer. The Company does not have visibility into QVC's shipment status, but based on the historical timing of payments from QVC, management has estimated that products shipped from the Company to QVC are sold and shipped by QVC within 60 days. Therefore, as part of the restatement, the Company has deferred the recognition of revenue on non- TSV sales by 60 days since inception of selling products to this customer. In addition to QVC, starting in the second quarter of fiscal 2011, the Company began assuming the credit risk for the retailer BJ's Wholesale Club. BJ's Wholesale Club continues to send its sales orders to MBlock to be fulfilled, however, the invoices and associated accounts receivable are now directly between the Company and BJ's Wholesale Club (not MBlock). Title to the product is with the Company and only passes to BJ's Wholesale Club upon shipment from MBlock's warehouses based on the contractual shipping terms. With regard to Comments 4 and 9, GMCR's March 29 Response Letter stated in

25

RESPONSE TO COMMENT 9 As disclosed in the Fiscal 2010 Form 10-K, MBlock performs an administrative function in processing the majority of sales ordersfor the Company's at-home single-cup business with retailers in the United States. Similarly, the Company relies on a single order fulfillment entity similar to MBlock to process the majority of sales orders for its at-home single-cup business with retailers in Canada, which accounted for less than 3% of the Company's consolidated net sales in fiscal 2010. These fulfillment entities do not sell the Company's products but rather receive and fulfill sales orders and invoice retailers and maintain the Company's inventory. The Company notes that even though approximately 43% of its consolidated net sales were processed by MBlock in fiscal 2010, the substance of MBlock's relationship with the Company is administrative and procedural and not as a purchaser or consumer of the Company's products. Instead, retailers, and the consumers purchasing brewers and K-Cup portion packs from those retailers, initiate demand for at-home brewers and are the Company's primary customers.

Because these functions are primarily administrative and these vendors do not constitute a customer relationship or drive purchases of the Company's products, the Company has concluded that it is not substantially dependent on these contractual relationships and could either perform these functions internally orfind a suitable replacement vendor if the need arises. Instead, the
Company believes that these vendor relationships may be material to investors only to the extent that it faces potential credit risk with respect to its accounts receivable from these vendors, and it has disclosed this risk in its periodic reports, including in the risk factors found in its Fiscal 2010 Form 10-K. 91. Thus, in the March 29 Response Letter, just as it did when the SEC last inquired

into the Company's key strategic relationship with MBlock, GMCR continued to deny that its MBlock-related disclosures were in any way inadequate. 92. GMCR's statements in the March 29 Response Letter to the SEC were materially

misleading when made. As to "Comment 4," see ~~ 89-90, in describing the Company's revenue recognition policy for certain sales transactions with MBlock, the Company neglected to explain the ways it deceptively exploited the very policy contours being described. Presentation, however, connected the dots and detailed the Company's The Einhorn

use of sham-QVC

26

transactions to circumvent a general policy of accepting all credit risk on sales to retailers through MBlock. 93. GMCR's statements in the March 29 Response Letter regarding "Comment 9,"

see ~~ 89, 91, were also materially false and misleading when made. GMCR's claim that MBlock "do[es] not sell the Company's products but rather receivers] and fulfill[s] sales orders and invoice[s] retailers and maintain the Company's inventory" is belied by the Company's own prior statements. Indeed, in the Company's 2009 Annual Report, GMCR stated: "We sell a significant number of brewers and K-cups to this third party fulfillment company for re-sale to certain retailers." 94. Moreover, the Company's claim that MBlock does "not constitute a customer

relationship or drive purchases of the Company's products," is directly contradicted by the detailed accounts in the Einhorn Presentation. Given the "unusual" puppet/master relationship between GMCR and MBlock, and the "shell game" revealed by the Einhorn Presentation, it defies credibility that the Company could readily "find a suitable replacement" for MBlock. I. 95. THE TRUTH ABOUT DEFENDANTS' SCHEME IS DISCLOSED On October 17,2011, at the seventh annual Value Investing Conference, the truth

about GMCR's misconduct began to emerge. As referenced above, David Einhorn, a prominent investor in GMCR, undertook a lengthy and in-depth analysis of GMCR's financial reporting and relationship with MBlock. The Einhorn Presentation cited expert analysis of detailed

information gleaned from numerous sources, not all of which were readily available to the public. In assembling the Einhorn Presentation, Einhorn and his staff conducted substantial field research and interviewed former GMCR and MBlock employees who told consistent storieseach painting an "unflattering picture" of the companies' interactions that indicated pervasive fraud by the Company and its senior officers 27

96.

As set forth herein, the Einhorn Presentation

provided

original insight and

shocking details that revealed GMCR's improper practices and fraudulent scheme with MBlock.

First, the witnesses interviewed in Einhorn's

field research

described

an "unusual"

and

"peculiar" relationship between GMCR and MBlock. According to Einhorn's sources, "/iJt was

clear that Keurig and Green Mountain control MBlock." Another Einhorn source employed by
MBlock stated that it "felt like they worked for Keurig [i.e., GMCR]" more than MBlock, adding, "I really never even had a boss while I was at MBlock." Einhorn's sources further

explained that "[n]obody in that [MBlock] warehouse can tell you what [product] is MBlock's, what is Keurig['s], what is Green Mountain's, nobody can tell you that." This statement

supports the inference that GMCR "parked" inventory at MBlock, booking its shipments as sales to boost profits. Likewise, another witness provided that whenever GMCR visited MBlock,

GMCR was "not treated like clients as the other customers were," which was considered "so weird."

97.

Second, the Einhorn Presentation described frequent "cross-shipping"

between

GMCR and MBlock.

GMCR products were transferred from one facility to another (often One witness advised Einhorn, "We would do more Keurig would ship stuff to The Einhorn

multiple times) for no apparent reason.

transferring of inventory than we physically did shipping. . ..

themselves, I mean truckloads of stuff they'd ship [from MBlock] to themselves." Presentation further describes how "the deliberate overproduction

of K-cups" and a "refusal to

ship from multiple locations gave cover for a shell game that Green Mountain was playing across all its facilities." Einhorn's sources also advised of "odd material movements" between GMCR frequently took place during MBlock's external

and MBlock, noting that such "irregularities" inventory

audits. One source recalled that, prior to an MBlock inventory audit, MBlock

28

warehouses would be partially cleared leaving only a "skeleton inventory of approximately 50%." Another source recalled an occasion on which 500,000 brewers were inventoried and

processed as an order for QVC immediately prior to an audit at MBlock.

These 500,000

brewers, however, were never shipped, and after the audit the inventory was simply restocked at MBlock. Another former MBlock employee cited in the Einhorn Presentation recalled: "We
would remove product and preload trailer trucks to ship to retailers because we didn't have room on the floor. Then we'd load more product on trailer trucks to nowhere." cited in the Einhorn Presentation "delivering [GMCR] merchandise Yet another witness

detailed an account of a "Kenco trucker" who reported to Kenco, picking it up later on, sealing the truck, and

delivering it 10 bay doors down at the same warehouse."

98.
GMCR.

Third, the Einhorn Presentation detailed systemic excess production practices at

In one field interview, Einhorn was advised that a "manager of demand planning"

consistently wrote internal e-mails that "would talk about how far over the demand forecast actual production was." This excess production led to a "significant problem with expired "MBlock received truckloads of expired coffee

coffee" being shelved and housed at MBlock.

directly from Green Mountain" just so that "plant managers" could continue to "say[] they have space taken up by the inordinate amount of expired coffee." One witness estimated that "at least one third of [MBlock's] warehouse is more than likely expired coffee," deceptively taking up space and generating fake product demand. 99. The Einhorn Presentation caused GMCR's stock price to decline and sparked a Specifically, as a result of revelations in the Einhorn

chain reaction in the financial community.

Presentation leaking into the market after the Value Investor Conference on Monday October 17, the price of GMCR's shares fell approximately 10%, from a closing price of $92.09 on (Friday)

29

October 14 to a close of$82.50 on October 17, on unusually heavy trading volume. 100. Then, on October 19, 2011, the Einhorn Presentation was more widely

distributed. The Wall Street Journal published an article called "Here's the Einhorn Presentation that Killed Green Mountain Shares." As a result of this additional disclosure, the price of GMCR's common stock declined approximately 15%, from a closing price of $82.11 on October 18 to a closing price of$69.80 on October 19, on unusually heavy trading volume. 101. Less than one month after the Einhorn Presentation, on November 9, 2011,

GMCR shocked investors when the Company missed sales estimates for the first time in more than eight quarters, and failed to beat profit expectations after five quarters. Not only did GMCR announce disappointing earnings results, but the Company also disclosed skyrocketing inventory levels-up 156% year-over-year, by nearly $410 million. That disclosure appeared to

corroborate Einhorn's allegations that the Company had been dumping inventory on MBlock to artificially boost revenues. In the November 9 earnings conference call held later that day, Mark Astrachan, an analyst at Stiefel Nicolaus, aptly questioned: So, it was up 156% year-on-year, which was ahead of the sales growth, especially considering the previous commentary, you talked about it being capacity constrained. So I guess I'm trying to figure out why inventories are building when you've talked about running your equipment basically 2417. 102. In response to Astrachan's question, Defendant Rathke admitted that "inventories

were up significantly" and that approximately $273 million of the $436 million inventory increase was attributable to "finished goods ... coming from K-Cup portion packs on-hand and. . . [on] the brewer's side." Subsequently, although the Company sought to blame its disappointing earnings on a sudden change in customers' buying habits, as noted by top hedge fund manager Whitney Tilson of T2 Partners LLC, "the GMCR growth story looks like it was pumped up by shenanigans." As reported by CNBC, Tilson added:

30

There are many big questions here. . .. But the biggest is probably that inventories were up 356% year over year. And they don't really provide a

satisfactory explanation in the earnings release. . .. This smells to me like channel stuffing. . .. It looks to me like they pulled a lot of demand forward last quarter, stuffed the channel. . .. [A sign] that [the] game has come crashing down. This company may be in real trouble.
103. Indeed, following the release of GMCR's shocking fourth-quarter results, The

Wall Street Journal published an article entitled "Green Mountain Earnings: Big Revenue Miss," noting: Green Mountain shares are getting crushed in after-hours trading after the coffee roaster posted much lower-than-expected revenue. Shares are sinking about 27% in late trading. Green Mountain posted $711.9 million in sales for the fourth quarter ... the average of analyst estimates was revenue of $760.5 million .... Canaccord Genuity said in a research note that the results will "lead to a hearty . correction tomorrow. The Q4 brewer sales growth trailed the measured growth at retail by NPD during the quarter, which we can't explain." 104. Similarly, an article published The Guardian on November 9, reported:

Keurig coffee machine maker Green Mountain Coffee Roasters missed Wall Street's quarterly sales estimates, knocking off a third of its market value, at a

time when [Einhorn] is questioning the company's business practices and growth potential. . . . The company missed sales estimates for the first time in
more than eight quarters, and failed to beat profit expectations after five quarters. On the analyst call, CEO Blanford admitted that sales missed the company's own estimates .... 105. As a result of the forgoing news and the reverse-course from GMCR regarding

demand and inventory levels, GMCR's

shares plummeted 40%, from a close of $67.02 on

November 8 to $40.89 on November 9, on extremely heavy trading volume. V. ADDITIONAL 106. EVIDENCE OF SCIENTER - EXCHANGE ACT CLAIMS

As alleged herein, the Officer Defendants acted with scienter in that they knew

that the public documents and statements issued or disseminated in the name of the Company were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or

31

acquiesced

in the issuance or dissemination

of such statements or documents

as pnmary

violations of the federal securities laws.

As set forth elsewhere herein in detail, the Officer

Defendants, by virtue of their receipt of information reflecting the true facts regarding GMCR, their control over, andlor receipt, and/or modification of GMCR's allegedly materially

misleading misstatements andlor their associations with the Company which made them privy to confidential proprietary information concerning GMCR, participated in the fraudulent scheme alleged herein. 107. The alleged improprieties noted herein enabled the Officer Defendants to exercise

and sell the following suspicious amounts of their GMCR shares during the Class Period:

Defendant Robert Stiller

Date 05/05111 08/04/11

Price $68.34 $107.43

# of Shares 310,000 500,000 810,000

Proceeds $21,184,625 $53,716,650 $74,901,275 $32,692,613 $3,524,370 $4,482,734 $5,014,206 $3,609,459 $16,630,768

Frances Rathke Lawrence Blanford

08/05/11 05/05/11 08/16/11 09120/11 10118/11

$96.87 $68.34 $99.62 $111.43 $80.21

337,500 51,573 45,000 45,000 45,000 186,573

108. May 2009. VI.

Prior to these sales, there had not been significant insider trading activity since

LOSS CAUSATION - EXCHANGE ACT CLAIMS 109. For purposes of the Exchange Act claims alleged herein, the Exchange Act

Defendants' unlawful conduct alleged herein directly caused the losses incurred by Plaintiff and the Class. Throughout the Class Period, the price of GMCR common stock was artificially

32

inflated as a direct result of the Exchange Act Defendants' materially false and misleading statements and omissions. The false and misleading statements and omissions set forth above were widely disseminated to the securities markets, investment analysts, and the investing public. The true facts became known by investors and the market through a series of partial corrective disclosures. By making contemporaneous additional misstatements in connection with these partial disclosures or by failing to reveal the falsity of all statements at one time, artificial inflation remained in the prices of GMCR common stock throughout the Class Period. 110. As the true facts became known and/or the materialization of the risks that had

been concealed by the Exchange Act Defendants occurred, the price of GMCR common stock declined as the artificial inflation was removed from the market price of the securities, causing substantial damage to Plaintiff and the members of the Class. 111. On Monday October 17, 2011, the truth about GMCR's misconduct began to

emerge. The Einhorn Presentation provided original insight that revealed GMCR's improper practices. Indeed, shocked investors learned of: (a) the "unusual" and "peculiar" relationship between GMCR and MBlock pursuant to which GMCR effectively controlled and exploited MBlock; (b) regular "cross-shipping" between GMCR and MBlock whereby product was transferred from one facility to another (often multiple times) for no apparent reason; (c) "odd material movements" between GMCR and MBlock such that employees inventoried and processed orders that were never shipped and later restocked; (d) systemic excess production practices at GMCR to generate fake perceived demand for Company products. 112. The Einhorn Presentation and associated analyst and media commentary on

October 17 and 19 concerning GMCR's misconduct caused GMCR's stock price to decline and sparked a chain reaction in the financial community. Specifically, as a result of news of the

33

Einhorn Presentation leaking into the market after the Value Investor Conference, the price of GMCR's shares fell approximately 10%, from a closing price of $92.09 on (Friday) October 14 to a close of $82.50 on October 17, on unusually heavy trading volume. 113. Then, on October 19, 2011, the Einhorn Presentation was more widely

distributed. The Wall Street Journal published an article called "Here's the Einhorn Presentation that Killed Green Mountain Shares," which provided a link to the Einhorn Presentation. The article further noted: On Monday, investor David Einhorn laid out in 110 PowerPoint slides outlining his concerns about the health of Green Mountain Coffee. The presentation from Einhorn, known for his eventually true suspicions about Allied World and Lehman Brothers, drove down Green Mountain shares by 10% on Monday. 114. As a result of these additional disclosures, the price of GMCR's common stock

declined approximately 15%, from a closing price of $82.11 on October 18 to a closing price of $69.80 on October 19, on unusually heavy trading volume. 115. On October 31, 2011, Sequence Inc. issued a damning report summarizing the

critical facts in the Einhorn Presentation, calling GMCR a "house of cards" and explaining away the Company's would-be rebuttals. This news caused Green Mountain's stock to fall an

additional 8%, from a close of $70.99 the prior trading day (Friday, October 28) to $65.02 on October 31, on unusually heavy trading volume. 116. Finally, on November 9, 2011, GMCR shocked investors when it issued a press

release announcing disappointing fourth quarter and full fiscal year results for the period ending September 24, 2011. GMCR also disclosed skyrocketing inventory levels in stark contrast to the Company's prior representations, which baffled analysts. GMCR's shares plummeted 40%,

from a close of$67.02 on November 9 to a close of$40.89 on November 10, on extremely heavy trading volume of more than 47 million shares.

34

117.

For purposes of the Exchange Act claims, it was entirely foreseeable to GMCR

and the Officer Defendants that failure to disclose the scheme alleged herein would artificially inflate the price of GMCR common stock during the Class Period. 118. It was similarly foreseeable that the ultimate disclosure of this information would

cause the price of these securities to drop significantly as the inflation caused by Defendants' earlier misstatements was removed by the corrective disclosures set forth herein. 119. Accordingly, the conduct of the Exchange Act Defendants as alleged herein

proximately caused foreseeable losses under the Exchange Act for Plaintiff and members of the Class who purchased or otherwise acquired GMCR common stock during the Class Period and were damaged thereby.

VII.

APPLICABILITY OF FRAUD ON THE MARKET PRESUMPTION
120. At all relevant times, the market for GMCR common stock was an efficient

market that promptly digested current information with respect to the Company from all publicly available sources and reflected such information Throughout the Class Period: a. b. GMCR stock met the requirements for listing, and was listed and actively traded on the NASDAQ, a highly efficient and automated market; GMCR met the requirements of a seasoned issuer to file registration statements under Form S-3; in addition, as a regulated issuer, GMCR filed periodic public reports with the SEC and NASDAQ; GMCR regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services; Securities analysts and the business press followed and published research reports regarding GMCR that were publicly available to investors; in the prices of the Company's securities.

c.

d.

35

e.

The market price of GMCR common stock reacted promptly to the dissemination of public information regarding the Company; The average daily trading volume for GMCR common stock during the Class Period was approximately 4.6 million shares traded; and The Company's market capitalization was approximately $10.4 billion on November 10,2011. SAFE HARBOR AND

f. g.

VIII.

THE INAPPLICABILITY OF THE STATUTORY BESPEAKS CAUTION DOCTRINE 121.

The PSLRA's statutory safe harbor and/or bespeaks caution doctrine applicable to statements under certain circumstances do not apply to any of the false and

forward-looking

misleading statements pleaded in this Complaint. 122. None of the statements complained of herein were forward-looking statements.

Rather, they were historical statements or statements of purportedly current facts and conditions at the time the statements financial condition. 123. To the extent that any of the false or misleading statements alleged herein can be were made, including statements about GMCR's then-existing

construed as forward-looking, those statements were not accompanied by meaningful cautionary language identifying important facts that could cause actual results to differ materially from those in the statements. As set forth above in detail, then-existing facts contradicted Defendants

statements regarding GMCR's financial condition and the payments of accelerated, discretionary bonuses to Merrill's Defendants' executives and employees. Given the then-existing fact contradicting

statements, the generalized risk disclosures made by Defendants were not sufficient

to insulate Defendants from liability for their materially false and misleading statements. 124. To the extent that the statutory safe harbor may apply to any of these false are liable for those false forward-looking statements

statements alleged herein, Defendants

because at the time each of those statements was made, the speaker actually knew the statement

36

was false, or the statement was authorized and/or approved by an executive officer of GMCR who actually knew that the statement was false. IX. CLASS ACTION ALLEGATIONS 125. Plaintiff brings this action on its own behalf and as a class action pursuant to Rule

23(a) and Rule 23(b)(3) of the Federal Rules of Civil Procedure on behalf of all persons or entities (the "Class") who purchased or acquired GMCR common stock during the period from February 2, 2011 through and including November 9, 2011 (the "Class Period") and suffered damages as a result. 126. Excluded from the Class are: (i) Defendants; (ii) members of the immediate

family of each of the Defendants; (iii) any person who was an executive officer and/or director of GMCR during the Class Period; (iv) any person, firm, trust, corporation, officer, director, or any other individual or entity in which any Defendant has a controlling interest or which is related to or affiliated with any of the Defendants; and (v) the legal representatives, agents, affiliates, heirs, successors-in-interest or assigns of any such excluded party. 127. The members of the Class, purchasers ofGMCR common stock, are so numerous

that joinder of all members is impracticable. While the exact number of Class members can only be determined by appropriate discovery, Plaintiff believes that Class members number in the thousands, if not higher. As of July 27, 2011, GMCR reported that it had 153,092,273 shares of common stock issued and outstanding. Plaintiff s claims are typical of the claims of members of the Class. 128. Plaintiff and all members of the Class sustained damages as a result of the

conduct complained of herein. 129. Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained court-appointed counsel competent and experienced in class and securities 37

litigation.

Plaintiff has no interests that are contrary to or in conflict with those of the members

of the Class that Plaintiff seeks to represent. 130. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy. Because the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members individually to seek redress for the wrongful conduct alleged herein. 131. predominate Common questions of law and fact exist as to all members of the Class and over any questions solely affecting individual Class members. Among the

questions of law and fact common to the Class are: a. b. Whether the federal securities laws were violated by Defendants' acts as alleged herein; Whether documents, including the Company's SEC filings, press releases, and other public statements made by Defendants, during the Class Period contained misstatements of material fact or omitted to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; Whether the market price of GMCR common stock during the Class Period was artificially inflated due to the material misrepresentations and/or non-disclosures complained of herein; With respect to Plaintiff s claims under Section 1O(b) of the Exchange Act, whether the Exchange Act Defendants acted with the requisite state of mind in omitting and/or misrepresenting material facts in the documents filed with the SEC, press releases and public statements; With respect to Plaintiffs claims pursuant to Section 20(a) of the Exchange Act, whether the Exchange Act Defendants named in those counts are controlling persons of the Company; and whether the members of the Class have sustained damages as a result of the misconduct complained of herein and, if so, the appropriate measure thereof.

c.

d.

e.

132.

Plaintiff knows of no difficulty that will be encountered in the management of this

litigation that would preclude its maintenance as a class action.

38

133.

The names and addresses

of the record owners of GMCR common stock

purchased during the Class Period are obtainable from information in the possession of the Company's transfer agent(s). Notice can be provided to such record owners via first class mail using techniques and a form of notice similar to those customarily used in class actions.

x.

CLAIMS FOR RELIEF UNDER THE SECURITIES COUNT I

ACT

For Violations Of § 11 Of The Securitjes Act (Against The Securities Act Defendants) 134. Plaintiff repeats and re-alleges each and every allegation contained above as if This Count is brought pursuant to Section 11 of the Securities Act, 15

fully set forth herein.

U.S.C. § 77k, against the Securities Act Defendants. 135. The Offering Materials were inaccurate and misleading, contained untrue

statements of material facts regarding the health of GMCR's business and the accuracy of its financial statements and omitted to state other facts necessary to make the statements made not misleading, and concealed and failed adequately to disclose material facts as described above. 136. The Defendants named in this Count were responsible for the contents and

dissemination of the Offering Materials issued in connection with the May 11,2011 offering of common stock described above, and caused them to be filed with the SEC. With the exception of the Underwriter Defendants, each of the Defendants named in this Count signed the

Registration Statement pursuant to which the stock for the May 2011 Offering was issued and/or the Q2' 11 10-Q that was incorporated by reference into the 2011 Offering Materials. By

incorporating the Q2' 11 10-Q into the 2011 Offering Materials, the Defendants named in this Count assumed the duty to provide all material information operations. about GMCR's financials and

39

137.

As the issuer of the common stock in the May 2011 Offering, GMCR is liable to

the members of the Class who acquired the common stock pursuant to the false and misleading Offering Materials, under Section 11 of the Securities Act. 138. Class members acquired the common stock described above pursuant to the

Offering Materials without knowledge of the truth of any misrepresented fact or omission. 139. None of the Defendants named in this Count made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the Offering Materials were true and without omissions of any material facts and were not misleading. Each of the Defendants named in this Count acted negligently in issuing the Offering Materials. 140. The Defendants named in this Count issued, caused to be issued, and participated

in the issuance of materially false and misleading written statements to the investing public which were contained in the Offering Materials, which misrepresented or failed to disclose, inter alia, the facts set forth above. By reasons of the conduct herein alleged, each Defendant named in this Count violated Section 11 of the Securities Act. 141. At the times they acquired the common stock described above, Plaintiff was

without knowledge of the facts concerning the wrongful conduct alleged herein and could not have reasonably discovered those facts. 142. This Count has been brought within one year after the discovery of the untrue

statements or omissions, or after such discovery could have been made by the exercise of reasonable diligence, and within three years after the security was bona fide offered to the public.

40

COUNT II For Violations Of § 12(a)(2) Of The Securities Act (Against Defendants GMCR, Stiller, Blanford, Davis, Moran, And The Underwriter Defendants)

143.

Plaintiff repeats and re-alleges each and every allegation contained above as if

fully set forth herein. 144. This Count is brought by Plaintiff pursuant to § 12(a)(2) of the Securities Act, 15

u.S.C. § 771, on behalf of themselves and all other members of the Class who acquired the common stock in the May 2011 Offering described above, pursuant to the Offering Materials, against the Defendants named in this Count. This claim does not sound in fraud and should be read to exclude any reference in the preceding paragraphs to recklessness, fraud, or intentional acts by the Defendants named in this Count. 145. The Defendants named in this Count were sellers and offerors of the common

stock offered pursuant to the Offering Materials. 146. The Offering Materials contained untrue statements of material facts, omitted to

state other facts necessary to make the statements made not misleading, and concealed but failed to disclose material facts. The actions of the Defendants named in this Count included

solicitation or participation in the preparation of the false and misleading Offering Materials. 147. The Defendants named in this Count were obligated to make a reasonable and

diligent investigation of the statements contained in the Offering Materials, to ensure that such statements were true and that there was no omission to state a material fact required to be stated in order to make the statements contained therein not misleading. The Defendants named in this Count, in the exercise of reasonable care, should have known of the misstatements and omissions contained in the Offering Materials as set forth above. 148. Members of the Class acquired the common stock from the May 2011 Offering 41

pursuant to the defective Offering Materials.

These investors did not know, or in the exercise of

reasonable diligence could not have known, of the untruths and omissions contained in the Offering Materials. 149. violated, By reason of the conduct alleged herein, the Defendants named in this Count a person who violated, Section 12(a)(2) of the Securities Act.

andlor controlled

Accordingly, class member are entitled to damages pursuant to Section 12(a)(2). 150. This Count has been brought within one year after the discovery of the untrue

statements or omissions, or after such discovery could have been made by the exercise of reasonable diligence, and within three years after the security was bona fide offered to the public.

COUNT III For Violations Of § 15 Of The Securities Act (Against The Officer Defendants And Director Defendants)
151. Plaintiff repeats and re-alleges each and every allegation contained above as if

fully set forth herein. 152. This Count is brought pursuant to Section 15 of the Securities Act, 15 U.S.C.

§ 770 against the Officer Defendants and Director Defendants. 153. The Officer Defendants and Director Defendants exercised direct control over

GMCR, acting as day-to-day managers of the Company, and by virtue of their positions as Officers andlor Directors Company's day-to-day of the Company. financial As a result of their actual control over the statements, public filings and their intimate

operations,

involvement and control over the Offering Materials the Officer Defendants and the Director Defendants had the power, and exercised the same, to cause GMCR to engage in the violations of law complained Materials. of herein and were able to and did control the contents of the Offering

42

154.

As a result of their control over GMCR, the Officer Defendants and the Director

Defendants are jointly and severally liable with and to the same extent as GMCR to Plaintiff and the Class. XI. CLAIMS FOR RELIEF UNDER THE EXCHANGE ACT

COUNT IV
Violations of Section lOeb) of the Exchange Act and Rule IOb-S (Against The Exchange Act Defendants) 155. Plaintiff repeats and re-alleges each and every allegation set forth above as if fully

set forth herein. 156. This Claim is brought pursuant to Section 10(b) of the Exchange Act and Rule

IOb-5(b) promulgated thereunder, on behalf of Plaintiff and all other members of the Class, against the Exchange Act Defendants. 157. Throughout the Class Period, the Exchange Act Defendants individually, and in

concert, directly and indirectly, by the use and means of instrumentalities of interstate commerce, the mails and the facilities of a national securities exchange, employed devices, schemes and artifices to defraud, made untrue statements of material fact and/or omitted to state material facts necessary to make statements made not misleading, and engaged in acts, practices and a course of business which operated as a fraud and deceit upon Class members, in violation of Section IO(b) of the Exchange Act and Rule IOb-5(b) promulgated thereunder. 158. Defendants' false and misleading statements and omissions were made with

scienter and were intended to and did, as alleged herein, (i) deceive the investing public, including Plaintiff and the other members of the Class; (ii) artificially create, inflate and maintain, the market for and market price of the Company's common stock; and (iii) cause Plaintiff and the other members of the Class to purchase GMCR's common stock at inflated

43

pnces. 159. By failing to inform the market of their fraudulent scheme with MBlock, and

making other false statements and material omissions, these Exchange Act Defendants presented a misleading picture of GMCR's finances and prospects. This caused and maintained artificial inflation in the trading prices of GMCR's publicly traded securities throughout the Class Period and until the truth came out. 160. The Exchange Act Defendants were individually and collectively responsible for

making the statements and omissions alleged herein, by virtue of having prepared, approved, signed and/or disseminated documents which contained untrue statements of material fact and/or omitted facts necessary to make the statements therein not misleading and/or making direct statements to the investing public on the conference calls detailed herein. 161. During the Class Period, the Exchange Act Defendants occupied executive level

positions at GMCR and were privy to non-public information concerning the Company. Each of them knew or recklessly disregarded the adverse facts specified herein and omitted to disclose those facts. 162. As described herein, the Exchange Act Defendants made the false statements and

omissions knowingly and intentionally, or in such an extremely reckless manner as to constitute willful deceit and fraud upon Plaintiff and other members of the Class who purchased GMCR common stock during the Class Period. Throughout the Class Period, the Exchange Act

Defendants had a duty to disclose new, material information that came to their attention, which rendered their prior statements to the market materially false and misleading. There is a substantial likelihood that the disclosure of these omitted facts would have been viewed by the reasonable investor as having significantly altered the total mix of information available about

44

the prospects of the Company. 163. The Exchange Act Defendants' false statements and omissions were made in

connection with the purchase or sale of the Company's securities. 164. In ignorance of the false and misleading nature of the Exchange Act Defendants'

statements and/or upon the integrity of the market price for GMCR common stock, Plaintiff and the other members of the Class purchased GMCR stock at artificially inflated prices during the Class Period. But for the fraud, they would not have purchased the securities at artificially inflated prices. 165. The market price for GMCR common stock declined materially upon the public

disclosure of the facts that had previously been misrepresented or omitted by the Defendants, as described above. 166. Plaintiff and the other members of the Class were substantially damaged as a

direct and proximate result of their purchases of GMCR securities at artificially inflated prices and the subsequent decline in the price of those securities when the truth was disclosed. 167. This claim was brought within two years after discovery of this fraud and within

five years of the making of the statements alleged herein to be materially false and misleading. 168. By virtue of the foregoing, the Exchange Act Defendants have violated Section

10(b) of the Exchange Act and Rule lOb-5 promulgated thereunder, and are liable to Plaintiff and the members of the Class, each of whom has been damaged as a result of such violation.
COUNT V Violations of Section 20(a) of the Exchange Act (Against The Officer Defendants)

169.

Plaintiff repeats and re-alleges each and every allegation above as if set forth fully

herein. This Claim is brought pursuant to Section 20(a) of the Exchange Act against the

45

individual defendants on behalf of Plaintiff and all members of the Class who purchased GMCR common stock during the Class Period. 170. As alleged herein, GMCR is liable to Plaintiff and the members of the Class who

purchased GMCR stock based on the materially false and misleading statements and omissions set forth above, pursuant to Section 1O(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 171. Throughout the Class Period, the Section 20(a) Defendants were controlling

persons of GMCR within the meaning of Section 20(a) of the Exchange Act, and culpable participants in the GMCR fraud, as detailed herein. 172. Each of the Section 20(a) Defendants exercised control over GMCR during the

Class Period by virtue of, among other things, their executive positions with the Company, the key roles they played in the Company's management, and their direct involvement in its day to day operations, including its financial reporting and accounting functions. 173. In addition to the allegations set forth above, the following allegations

demonstrate the Section 20(a) Defendants' control over GMCR during the Class Period. 174. Given their individual and collective responsibilities for managing GMCR

throughout the Class Period, the Section 20(a) Defendants were regularly presented to the market as the individuals who were responsible for GMCR's day-to-day business and operations, as well as the Company's strategic direction. These Section 20(a) Defendants accepted responsibility for presenting quarterly and annual results, setting guidance for future periods and assuring the market about the state of, and prospects for the Company. No one else at GMCR exercised that degree of responsibility for, or control over, the Company's activities and public statements. 175. As a result of the false and misleading statements and omissions alleged herein,

46

the market price of GMCR common stock was artificially inflated during the Class Period. Under such circumstances, the presumption of reliance available under the "fraud on the market" theory applies, as more particularly set forth above. Plaintiff and the members of the Class relied upon either the integrity of the market or upon the statements and reports of the Section 20(a) Defendants in purchasing common stock at artificially inflated prices. 176. This claim was brought within two years after the discovery of this fraud and

within five years of the making of the statements alleged herein to be materially false and misleading. 177. By virtue of the forgoing, each of the Section 20(a) Defendants are liable to

Plaintiff and the Class, each of whom has been damaged as a result of GMCR's underlying violations. PRAYER FOR RELIEF - Applicable To All Claims 178. WHEREFORE, Plaintiff prays for relief and judgment, as follows: a. b. Determining that this action is a proper class action under Rule 23 of the Federal Rules of Civil Procedure; Awarding compensatory damages in favor of Plaintiff and the other Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon; Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; As to the claims set forth under the Securities Act (Sections 11, 12(a)(2) and/or 15), awarding rescission or a recessionary measure of damages; and Such other and further relief as the Court may deem just and proper.

c. d. e.

47

JURY TRIAL DEMAND - Applicable To All Claims
179. Plaintiff hereby demands a trial by jury.

Dated: November 29,2011

LYNN, LYNN & BLACKMAN, P.C.

~.
76 St. Paul Street, Suite 400 Burlington, Vermont 05401 Telephone: (802) 860-1500 Facsimile: (802 860-1580 Liaison Counsel for Plaintiff and the Proposed Class

BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
Gerald H. Silk (pro hac application forthcoming) A vi Josefson (pro hac application forthcoming) Stefanie 1. Sundel (pro hac application forthcoming) 1285 Avenue of the Americas New York, New York 10019 Telephone: (212) 554-1400 Facsimile: (212) 554-1444 Attorneys for Plaintiff and the Proposed Class

48

'JS

44 (Rev. 12107)

CIVIL COVER SHEET

The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.) I.

(a)

PLAINTIFFS

Louisiana (b)

Municipal Police Employees'
of Residence of First Listed

Retirement

System

County

Plaintiff

East Baton Rouge Parish, LA

Green Mountain Coffee Roasters, Inc., Robert P. Stiller, Lawrence J_ Blanford, Frances G Rathke, Barbara D, Carlini. William D. Davis, Jules A Del Vecchio, Michael J. Mardy, Hinds Miller, David E. Moran, Merrill Lynch, Pierce, Fermer & Smith Inc" Suntrust Robinson Humphrey. lnc., William Blair & Company. LLC, Ceneccord Genuity Inc, Janney Montgomery Scott LLC, Piper JaJTray & Co., RBC Capital Markets, LLC, Wells Fargo Securities, LLC, Rube Securities U,sA, Inc, an<tS_anlllflde, Inl'esIWll!1/ Se<;'lIri1ies Inc. Washl'ng. ton,

DEFENDANTS

County

01 Residence

01 First LIsted Defendant

_

VT

(EXCEPT IN U.S. PLAINTIFF CASES) NOTE:

(IN U.S. PLAINTIFF CASES ONLY) IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE LAND INVOLVED.

(c)
Gerald

Attorney's (Finn Name, Address, and Telephone Number) H. Silk, Avi Josefson Litowitz OF Berger

Attorneys FI. 38 III.

(If Known)

Bernstein II. BASIS I

& Grossmann
_'i'i

LLP, 1285 Ave. of the Americas, (Place an "X" in One Box Only)

JURISDICTION

o

U.S. Govenunent Plaintiff

l!'I 3 Federal Question
(U.S. Govenunent Not a Party)

CITIZENSHIP OF PRINCIPAL (For Diversity Cases Only) PTF DEF Citizen of'This State 0I (] 1

PARTIES(Placean"X"inOneBoxforPlaintiff and One Box for Defendant) PTF DEF Incorporated or Principal Place (] 4 m4 of Business In This State Incorporated and Principal Place of Business In Another State Foreign Nation

o2

U.S. Govenunent Defendant

o

4

Diversity (Indicate Citizenship of Parties in Item III)

Citizen of Another State

02 03

o o

2

m o

5

o
0

5

3

6

6

(P.1"e<: an ")\

jn

One.Box

Oill

~:m
PERSONAL INJURY 362 Personal Injury Med. Malpractice 0 365 Personal Injury Product Liability 0 368 Asbestos Personal Injury Product Liability PERSONAL PROPERTY 0 370 Other Fraud 0 371 Truth in Lending 0 380 Other Personal Property Damage 0 385 Property Damage Product Liability 0

o o o o o o o o o o o o o o o

I 10 Insurance 120Marine 0 130 Miller Act 0 140 Negotiable Instrument 150 Recovery of Overpayment 0 & Enfo"""f"wU.gf1udSm.Jit lSI Medicare Act 0 152 Recovery of Defaulted Student Loans 0 (Exc!. Veterans) 0 153 Recovery of Overpayment of Veteran's Benefits 0 160 Stockholders' Suits 0 190 Other Contract 195 Contract Product Liability 0 196 Franchise

Gm
220 230 240 245 290 Foreclosure Rent Lease & Ejeclment Torts to Land Tort Product Liability All Other Real Property

PERSONAL INJURY 310 Airplane 315 Airplane Product Liability 320 Assault, Libel & Slander 330 Federal Employers' Liability 340 Marine 345 Marine Product Liability 350 Motor Vehicle 355 Motor Vehicle Product Liability 360 Other Personal In mY

o 620 Other Food & Drug o o 423 Withdrawal o 625 Drug Related Seizure o 28 USC 157 of Property 21 USC 881 o a 630 Liquor Laws ~W'i~~~iii~~mili:ii~~~o
& Truck 13 650 Airline Regs. a 660 Occuparional Safety/Health

IJ 610 Agriculture

o

422 Appeal 28 USC 158

o

400 410 430 450

State Reapportionment Antitrust Banks and Banking Commerce

o 640RR

o o o

820 Copyrights 830 Patent 840 Trademark

0 470 Racketeer Influenced and
COI11lptOrganizations 480 Conswner Credit 490 Cable/Sat TV 810 Selective Service

460 Deportation

o 690.0,b.,
~lO

•.••.

.0 710 Fair Labor Standards
Act 720 LaborlMgmt. Relations '0 730 Labor/Mgmt.Reporting & Disclosure Act 740 Railway Labor Act 790 Other Labor Litigation 791 Empl. Ret. Inc. Security Act

'0

~~~~:W~~mBl!i!!~1!!I n 861 HJA (13!l5fi) o 862 Black Lung (923) 0 o 863 D1WClDIWW (405(g»
o

o o

(]

o

o

IJ 0 441 VQling Sentence 0' 442 Employment Ha beas Corpus: 0 443 Housing! Accommodations 530 General 0 444 Welfare 13 535 Death Penalty 445 Amer. wlDisabilities - 0 540 Mandamus & Other o (] 550 Civil Rights Employment 0 446 Arner, wlDisabilities - o 555 Prison Condition Other 0 440 Other Civil Rights

ru

o

o

o

o o o

o

864 ssm Title XVI 865 RSl.(4QS III . SUI:rs' 870 Taxes (U.S. Plaintiff or Defendant) 871 IRS-Third Party 26 USC 7609

850 Securities!Commodities! Exchange 875 Customer Challenge 12 USC 3410 890 Other Statutory Actions 891 Agricultural Acts 892 Economic Stabilization Act 893 Environmental Matters 894 Energy Allocation Act 895 Freedom of'Informaticn Act 900Appeal of Fee Determination Under Equal Access to Justice .0 950 Constitutionality of State Statutes

n

V.
1511

ORIGIN Original Proceeding

o

(Place an "X" in One Box Only) 2 Removed from 0 State Court

3

Remanded from Appellate Court

o

4 Reinstated
Reopened

or

0

5 Transferred from another district ~.~

0 6 Multidistrict
Litigation

0

7

Appeal to District Judge-from M~
M'agistrate

VII. REQUESTED
COMPLAINT:

IN

CHECK UNDER

IF THIS IS A CLASS F.R.C.P. 23

ACTION

DEMANDS

CHECK

YES only if demanded ~ Yes

in complaint:

JURY DEMAND:

0 No

VIII.

RELATED IF

CASE(S)

ANY

(See instructions):

JUDGE

William K. Sessions, III

DOCKET

NUMBER

2: lO-cv-00227-wks

RECEIPT #

AMOUNT

APPLYING IFP

JUDGE

MAG. JUDGE

JS 44 Reverse (Rev. 12107)

INSTRUCTIONS FOR ATTORNEYS COMPLETING CIVIL COVER SHEET FORM JS 44
Authority For Civil Cover Sheet
The JS 44 civil cover sheet and the information contained herein neither replaces nor supplements the filings and service of pleading or other papers as required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. Consequently, a civil cover sheet is submitted to the Clerk of Court for each civil complaint filed. The attorney filing a case should complete the form as follows: I. (a) Plaintiffs-Defendants. Enter names (last, first, middle initial) of plaintiff and defendant. If the plaintiff or defendant is a government agency, use only the full name or standard abbreviations. If the plaintiff or defendant is an official within a government agency, identify first the agency and then the official, giving both name and title. (b) County of Residence . For each civil case filed, except U.S. plaintiff cases, enter the name of the county where the first listed plaintiff resides at the time of filing. In U.S. plaintiff cases, enter the name of the county in which the first listed defendant resides at the time of filing. (NOTE: In land condemnation cases, the county of residence of the "defendant" is the location of the tract ofland involved.) (c) Attorneys. Enter the firm name, address, telephone number, and attorney of record. If there are several attorneys, list them on an attachment, noting in this section "(see attachment)". II. Jurisdiction. The basis of jurisdiction is set forth under Rule 8(a), F.R.C.P., which requires that jurisdictions be shown in pleadings. Place an "X" in one of the boxes. If there is more than one basis of jurisdiction, precedence is given in the order shown below. United States plaintiff. (1) Jurisdiction based on 28 U.S.C. 1345 and 1348. Suits by agencies and officers of the United States are included here. United States defendant. (2) When the plaintiff is suing the United States, its officers or agencies, place an "X" in this box. Federal question. (3) This refers to suits under 28 U.S.c. 1331, where jurisdiction arises under the Constitution of the United States, an amendment to the Constitution, an act of Congress or a treaty of the United States. In cases where the U.S. is a party, the U.S. plaintiff or defendant code takes precedence, and box 1 or 2 should be marked. Diversity of citizenship. (4) This refers to suits under 28 U.S.C. 1332, where parties are citizens of different states. When Box 4 is checked, the citizenship of the different parties must be checked. (See Section III below; federal question actions take precedence over diversity cases.) III. Residence (citizenship) of Principal Parties. This section of the JS 44 is to be completed if diversity of citizenship was indicated above. Mark this section for each principal party. IV. Nature of Suit. Place an "X" in the appropriate box. If the nature of suit cannot be determined, be sure the cause of action, in Section VI below, is sufficient to enable the deputy clerk or the statistical clerks in the Administrative Office to determine the nature of suit. If the cause fits more than one nature of suit, select the most definitive. V. Origin. Place an
")C'

in one of the seven boxes.

Original Proceedings. (1) Cases which originate in the United States district courts. Removed from State Court. (2) Proceedings initiated in state courts may be removed to the district courts under Title 28 U.S.C., Section 1441. When the petition for removal is granted, check this box. Remanded from Appellate Court. (3) Check this box for cases remanded to the district court for further action. Use the date of remand as the filing date. Reinstated or Reopened. (4) Check this box for cases reinstated or reopened in the district court. Use the reopening date as the filing date. Transferred from Another District. (5) For cases transferred under Title 28 U.S.C. Section 1404(a). Do not use this for within district transfers or multidistrict litigation transfers. Multidistrict Litigation. (6) Check this box when a multidistrict case is transferred into the district under authority of Title 28 U.S.C. Section 1407. When this box is checked, do not check (5) above. Appeal to District Judge from Magistrate Judgment. (7) Check this box for an appeal from a magistrate judge's decision. VI. Cause of Action. Report the civil statute directly related to the cause of action and give a brief description ofthe cause. Do not cite jurisdictional unless diversity. Example: U.S. Civil Statute: 47 USC 553 Brief Description: Unauthonzed reception of cable service VII. Requested in Complaint. Class Action. Place an "X" in this box if you are filing a class action under Rule 23, F.R.Cv.P. Demand. In this space enter the dollar amount (in thousands of dollars) being demanded or indicate other demand such as a preliminary injunction. Jury Demand. Check the appropriate box to indicate whether or not a jury is being demanded. VIII. Related Cases. This section of the JS 44 is used to reference related pending cases if any. If there are related pending cases, insert the docket numbers and the corresponding judge names for such cases. Date and Attorney Signature. Date and sign the civil cover sheet. statutes

CERTIFICATION PURSUANT TO THE FEDERAL SECURITIES LAWS
I, R. Randall Roche, on behalf of Louisiana Municipal Police Employees' Retirement System ("LA MPERS"), hereby certify, as to the claims asserted under the federal securities laws, that:
1.

[am the General Counsel of LA MPERS. I have reviewed the complaint and authorize its filing.

2. LA MPERS did not purchase the securities that are the subject. of this action at the direction of counselor in order to participate in any action arising under the federal securities laws. 3. LA MPERS is willing to serve as a representative party on behalfofthe including providing testimony at deposition and trial, if necessary. Class,

4. LA MPERS' transactions in the Green Mountain Coffee Roasters, Inc. securities that are the subject of this action are set forth in the chart attached hereto. 5. LA MPERS served as representative party on behalf of a class in the following action under the federal securities laws tiled during the three-year period preceding the date of this Certification: Louisiana Municipal Police Employees Retirement System v. KP}VfG. LLP et al., Case No. IO-cv-1461 (N.D. Ohio) 6. LA MPERS has sought to serve as a lead plaintiff and representative party on behal f of a class in the following actions under the federal securities laws filed during the three-year period preceding the date of this Certification, but either withdrew its motions far lead plaintiff or was not appointed lead plaintiff: In re Royal Bank of Scotland Group PLC Securities Litigation, Case No. 09-cv-300 (S.D.N.Y.) City of Roseville Employees' Retirement System v. Textron, Inc. et al., Case No. 09-cv-367 (D.R.I.) Kyung Cho et al. v. UCBH Holdings. {nco et al., Case No. 09-cv-4208 (N.D. Cal.) 7. LA MPERS is currently seeking to serve as a lead plaintiff and representative, party on behalf of a class in the following action filed under the federal securities laws during the three years preceding the date of this Certification: City of Brockton Retirement System v. Avon Products, Inc. et al., Case No. ll-cv-4665 (S.D.N. Y.)

8. LA MPERS will not accept any payment for serving as a representative party on behalf of the Class beyond LA MPERS' pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the Class. as ordered or approved by the Court.
'/

I declare under enalty p

thiszt day of November, 2011.

of perjury that the foregoink is (.'r ~nd .. "_~Z -''''\l~

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R. Ranaull Roche General Counsel Retirement System

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Louisiana Municipal Police Employees'

Louisiana Municipal Police Employees' Retirement System Transactions in Green Mountain Coffee Roasters, Inc. (GMCR)
Transaction Date 09/23/2011 10/0312011 101201201 I 11/08/2011 03/08/2011 Shares 700 1,000 3,900 3,300 (100) Price 104.3647 88.9066 67.9144 70.6404 41.4156

Purchase Purchase Purchase Purchase Sale

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